Continental Funding Group (CFG) arranged $9,200,000 in first mortgage debt financing for a 272-unit Class C multifamily asset. The transaction featured an 80% loan-to-cost, LIBOR-based, interest only, non-recourse loan. Proceeds were used to pay off an existing loan at a substantial discount and provide funds for renovations. At the time of refinance, no units had been renovated or rented out at market rates. The subject’s upside is anticipated to be realized through extensive renovations.
The existing loan matured a few years ago, but the borrower was able to obtain extensions. During this period, the financial condition of the existing lender began to deteriorate and they were under pressure from the FDIC. Shortly thereafter the existing lender became insolvent and was taken over by the FDIC. The FDIC brokered a deal with a new lender to take over the operations and deposits from the existing bank. At this time, the borrower stepped in and was able to come to an agreement for a discounted payoff of the existing loan.
During the period of dispute with the existing lender, the borrower had to use all excess cash flow from the property to service legal fees. The borrower continued to operate the property as best as possible, despite the lack of operating income from the property. By keeping rental rates below market, the borrower managed to maintain a high level of occupancy. Now that a settlement has been reached, the borrower’s objective is to take advantage of market conditions and upgrade the Property through a $1.5 Million capital improvement plan. Doing so will get the property operating at its highest and best use.